On January 9, the People’s Bank of China (Chinese central bank) announced that it will issue the first tranche of Central Bank Notes (CBN) for the year 2025 on January 15, with a total issuance of 60 billion Chinese yuan (RMB).
The People’s Bank of China stated in the announcement that on January 15 (Wednesday), the People’s Bank of China will conduct a bid for the issuance of the first tranche of CBN for the year 2025 through the Hong Kong Monetary Authority’s Central Money Market Unit (CMU) bond tender platform.
The first tranche of CBN will have a maturity period of 6 months (182 days), with a fixed interest rate coupon, and will be redeemed and paid interest upon maturity. The issuance size is 60 billion RMB, with an interest commencement date of January 17, 2025, and a maturity date of July 18, 2025, with holiday extension if the maturity date falls on holidays.
According to the Daily Economic News on January 10, the previous issuance scale of RMB CBN in Hong Kong usually ranged from 10 to 20 billion, while this issuance reached 60 billion, marking the largest issuance scale in history. This move by the central bank aims to withdraw offshore RMB liquidity, with the hope to stabilize the exchange rate.
Public information indicates that Central Bank Notes (CBN) are short-term debt instruments, serving as a policy tool for central banks to regulate base currency. Issuing notes functions similarly to issuing bonds, reclaiming liquidity from the market. The issuance of CBN by the People’s Bank of China in Hong Kong helps to reclaim offshore RMB.
Despite the Chinese authorities repeatedly sending signals to stabilize the RMB exchange rate, experts in political and economic circles informed Epoch Times that the downward trend of the RMB is undeniable and imminent.
Since October 2024, the offshore RMB to USD exchange rate has been under pressure, fluctuating from around 7.0 to nearing 7.37, depreciating from the original 1 USD to 7 RMB to almost 1 USD to 7.4 RMB. As of January 9, 2025, the offshore RMB to USD exchange rate hovers around 7.35. The RMB has been steadily depreciating for three consecutive years until 2024.
Market analysis suggests that RMB depreciation could lead to increased capital outflows from China, exacerbating the already weakened Chinese economy. Such trends could destabilize the economy, escalate unemployment, and further fuel discontent among the public.
Professor Zheng Zhengbing from Yunlin University of Science and Technology’s Department of Finance and Economics expressed concerns to Epoch Times on January 5, stating that continued RMB depreciation may escalate foreign and domestic capital withdrawal from the Chinese market. While RMB depreciation typically boosts export competitiveness, in the current state of a sluggish Chinese economy, ongoing depreciation could worsen the economic situation.
Reuters reported in December last year that in November, the Chinese financial market experienced the largest scale of capital outflow in history.
International financial institutions project a continued economic decline for China in 2025. On December 20 last year, Daiwa Securities Group released a report predicting a 4.5% GDP growth rate for China in 2025, further decreasing from the expected 4.9% in 2024. Optimistically, China’s GDP growth rate in 2025 may hover around 5%, while pessimistically, it could drop to the 3% range. The report indicated a 60% probability of China’s GDP growth rate reaching 4.5%, with around 20% each for optimistic (5%) and pessimistic (3%) scenarios.
A foreign exchange trader informed the Daily Economic News, stating, “From an exchange rate perspective, issuing CBN mainly raises the cost of short-selling the RMB. However, the effectiveness of stabilizing the exchange rate ultimately depends on the U.S. dollar index.”
Since October 2024, the U.S. dollar index has risen from 100.7 to around 109.1, appreciating by over 8%.
Nomura Securities Research believes that January 20, 2025, when Trump will be inaugurated as the U.S. President, may be a crucial moment for the RMB. If Trump imposes an additional 10% tariff on existing Chinese tariffs under the “Section 301,” given the historical sensitivity of the offshore RMB (CNH) exchange rate to tariffs, CNH could devalue by approximately 1.8% against the USD, leading to an offshore RMB to USD spot exchange rate of around 7.46.
Standard Chartered anticipates that the onshore RMB to USD spot exchange rate (USD-CNY) in the foreseeable future will remain below 7.35.
First Financial Journal cited Kamakshya Trivedi, Global Currency, Interest Rates, and Emerging Markets Strategy Head at Goldman Sachs, stating that based on the institution’s baseline prediction, “The RMB is likely to continue weakening, with the USD against the RMB potentially rising to 7.40 in the next 3 months, and stabilizing around 7.50 within 6 to 12 months.”
David Hauner, a strategist at Bank of America, previously issued a warning that if Trump initiates a trade war and increases tariffs on Chinese goods to 60% after taking office, the RMB may depreciate beyond the crucial level of 8 RMB against the USD.